At the start of 2009, Metaswitch Networks was well known for its MetaSwitch VoIP solutions and the network protocol components it developed and sold under the Data Connection Limited (News - Alert) brand.

 

But because this was starting to get a little confusing for customers, it made sense to consolidate into a single brand identity. And so Metaswitch Networks was born (among the changes is a lowercase “s” in Metaswitch).

 

That was just one of the big events of the year for the advanced carrier services provider, Metaswitch Networks CEO John Lazar (News - Alert) told TMCnet in a special Q&A recapping the highlights of ’09. Come 2010, “you’re going to see Metaswitch becoming known for much more than Class 4 and 5 switch replacement,” Lazar said. “Truth is, our customers have known this for some time and have bought our products as much for the advanced services they deliver as they have for the products’ ability to offer the industry’s most complete C5 replacement.”

 

What else does the future hold for the company headquartered in Enfield, U.K., and Alameda, Calif.?

 

Lazar’s predictions – and the full exchange of the Q&A – follow.

 

 

John Lazar: Our goals for 2009 included continued VoIP market leadership with communication service providers, expanding our international footprint, and repositioning the company as Metaswitch Networks. Not only did we accomplish these goals, but we did it while growing revenue 4.2 percent and delivering operating margins of more than 20 percent. We added heads as well--more than 50 in fact, which included key VP hires for marketing and strategic alliances. All of this in the toughest global economy for more than half a century! So, all in all we think it was a pretty good year. But let me get more specific.

 

At the start of the year, we were well known for both our Metaswitch VoIP solutions and the network protocol components that we developed and sold as Data Connection Limited. This was starting to get a little confusing for our customers, so it made sense to consolidate our messaging into a single brand identity. With our Metaswitch division more recognizable and contributing the higher percentage of revenue it was time to rename the company as Metaswitch Networks. Underneath, there are now two divisions in the company -- Carrier Systems and Network Protocols. Carrier Systems provides voice over IP platforms and applications while Network Protocols sells voice and data networking protocol components to the who’s who of original equipment vendors worldwide. It’s a potent combination that gives us a sustainable business in tough times and a growth engine as the economy recovers. 

 

The success of our Carrier Systems Division business was primarily driven by continued success with North American incumbent and competitive local exchange carriers. Eight of the top 10 incumbent operators in North America now rely on Metaswitch for carrier VoIP infrastructure solutions. It was nice to see our deal size increase with a number of multi-million dollar projects. We also gained traction with larger Cable MSOs, and we’ll continue to circle those wagons in 2010.  

 

Simultaneously, we also expanded our international footprint with new customers in the Caribbean, South America and Pacific Islands. We added strategic partners to aid this expansion -- notably Technology Bureau, a telecommunications systems integrator in Argentina. We continue to become more and more active internationally and Infonetics has us as the clear leader in Class 5 softswitch leaders. It’s a great position for growth because our platforms are so much more than just integrated softswitches. We’ve mapped all of our products to equivalent IMS elements and our Metasphere Feature App server is really turning heads as a feature-rich, business and residential voice services platform.

 

The Network Protocols Division also saw impressive results. With all of the top 10 communications equipment vendors worldwide now using Metaswitch software to power their networking products, we rightly expect this division to continue to play a significant role in the worldwide evolution of voice and data networks.

 

Obviously, innovation has featured heavily in the last year as well, with two major product releases that have particularly strengthened our offerings across all market segments. In particular, we’re very pleased with our aggressive development of fixed mobile convergence solutions and the use of smartphones as the control point for your voice services from multiple carriers. Of course, we can only innovate so fast, and our customers need to innovate too if they are to remain relevant in this ultra-competitive market. To support this dynamic, we also launched the Metaswitch Innovators Community, a business social network where more than 600 people from 200 companies have generated VoIP applications and code for everything from processing billing records to enhanced diagnostic reporting. We’re very excited about the prospects for this community given the success of the code-sharing model that members have been quick to embrace.

 

 

JL: Well, our fiscal year actually started in September ’08, about two weeks before Lehman’s collapse! While it obviously scared the hell out of us, and everybody else immediately seemed to be scaling back, we took a look at our business and concluded that it was financially sound, scaled appropriately and that the value of our solutions didn’t change. That said, several industry analysts have noted that VoIP infrastructure spending was down about 30 percent in 2009, so clearly our customers cut back. But we focused very hard on satisfying the customers we had and building on our reputation of reliability and exceptional customer support. This allowed us to generate additional business from existing customers and expand into new opportunities whenever they arose. Indeed, we added a number of high-profile accounts throughout the year. 

 

What a lot of people don’t know is that we continued to invest above the typical industry norms. For example, our annual investment in R&D still exceeds 30 percent of revenue. That’s a remarkable number. We also hired judiciously and overall increased headcount by 8 percent. We do see some early signs of market recovery, but spending is still down considerably so we’ll continue to be cautious with our projections. But the fact that we invested so much in the worst of times positions us very well to ride the recovery and gain significant market share.

 

JL: First and foremost, you’re going to see Metaswitch becoming known for much more than Class 4 and 5 switch replacement. Truth is, our customers have known this for some time and have bought our products as much for the advanced services they deliver as they have for the products’ ability to offer the industry’s most complete C5 replacement. Our MetaSphere Feature and Application Server can deliver advanced services to IP and traditional end points, and it will sit on top of a third-party IMS core. Our CommPortal products give users graphical control over their services, messages and contact lists from a range of end user devices, and a lot of our R&D dollars continue to flow into the development of intuitive, scalable applications. We’ll not only continue to make these applications available as stand-alone solutions but they’ll also be completely IMS compliant.

 

Of course, we’ll continue to service our loyal U.S. customer base, and aim to sell more large deals. In parallel, we’ll drive further growth internationally. But fundamentally, we’ll remain focused on our core values of reliability, quality engineering, exceptional support and innovation. It’s easy to say those words, but very hard to consistently deliver on them. Our brand audit suggested that our customers really do value those qualities in us, and they’ll remain at the heart of whatever business strategy we embrace.

 

 

JL: It’s hard to measure things in months when it comes to telephone companies. They deliver services on a massive scale and delivering new applications on scale always takes time. I’m not sure that the challenges are necessarily changing, but they are definitely becoming more urgent. While our customers have historically battled each other as CLECs in an ILEC territory, with cable MSOs mixed in, I think the over-the-top providers give this tug of war a whole new dimension. It’s ironic that our customers satisfy their customers by delivering reliable voice and data services over broadband and in so doing they enable a high speed right of way for the OTT competitors. We don’t comment on the net neutrality debate, but we are very active in helping our customers compete with an innovative range of new services. Fundamentally, we believe that this is still about branding dial tone. Brand loyalty will play a huge part in the outcome, and we give our customers a way to completely brand the end user experience.   The other part of the battle will be help end users to take calls and access their services on one of many screens and devices. We have solutions for that already.

 

At the other end of the spectrum, things like the Broadband Stimulus Bill can pose challenges to the industry. For some, if feels like competitors are being given an unfair leg up. But in other cases, it provides the means to roll out more advanced services to all parts of America. The bigger challenge is in the actual notification of funding – with the delays to date, it’s actually preventing decisions being made rather than encouraging roll out.

 

JL: IMS continues to be a growth opportunity. They’re further ahead in Europe than we are in the U.S., so we believe our timing is right to be a player in North American IMS roll outs. Cable MSOs continue to look at business services as the most attractive segment – who’d have thought that 10 years ago – and we have some excellent traction there. Of course, PacketCable 2.0 drives IMS into Cable MSOs as well, so there’s some good cross pollination at an architectural level. We also see IMS interest from our smaller customers, and clearly it will be interesting to see where investments are made once the Stimulus Bill actually stimulates. Of course, much of the early IMS activity has been in mobile networks, and that segment continues to be a very real opportunity for Metaswitch. Mobile operators continue to seek advanced voice calling and messaging applications and their move to all-IP infrastructures also requires a large degree of network inter-operation. These are real sweet spots for Metaswitch.

 

It’s a sad note to end on, but there will be opportunities served up from the destruction caused by the economic downturn. The Nortel (News - Alert) CVAS saga continues to drag on and their customers can only handle so much uncertainty. Other vendors have scaled back so much that they’ll struggle to accelerate as the economy turns around. Metaswitch is pretty well positioned to capitalize on all of that.